Tuesday, March 19, 2019

Earnings Up, Xcel Touts ‘Steel-for-Fuel’ Strategy

By Tom Kleckner

Xcel Energy reported an increase in earnings for the third quarter as the company said its “steel-for-fuel” strategy of replacing fossil fuel plants with wind turbines will provide a solid blueprint for future growth.

The company reported third-quarter earnings of $458 million ($0.90/share), up 7.5% from the $426 million ($0.84/share) a year earlier. The results bested analysts’ expectations of 87 cents, according to Zacks Investment Research.

“The whole premise of steel-for-fuel is you can do things on an economic basis cheaper than the fossil alternatives,” CEO Ben Fowke told analysts during a conference call Thursday. “In reality, the environmental benefits will be icing on the cake. So, when you’re not impacting customer builds and you’re driving environmental leadership, it’s really a unique position for us to be in.”

Xcel proudly points to its designation by the American Wind Energy Association as the nation’s No. 1 utility wind-energy provider for 12 years running. Wind energy accounted for 17% of the energy Xcel generated in 2015, and it projects that figure to grow to 24% by 2020.

xcel energy steel for fuel results in more wind generation

| Xcel Energy

Much of that has been produced by long-term contracts with third parties, but the Minneapolis-based company announced earlier this week it would build four new wind farms in Minnesota and North Dakota with a total capacity of 750 MW.

In September, Colorado regulators approved Xcel’s plans to begin construction on its $1.1 billion, 600-MW Rush Creek Wind Project, allowing Xcel to claim $443 million in federal tax credits. The Rush Creek project is expected to come online in 2018.

“We expect [these] wind projects will generate hundreds of millions of dollars in fuel savings for our customers, which will more than offset the capital cost [to build them],” Fowke said.

CFO Bob Frenzel told analysts the company has updated its five-year capital forecast and now expects to invest $18.4 billion through 2021, including $3.5 billion on renewables. That includes the Rush Creek project and the Minnesota-North Dakota wind farms.

“When you look at the economic price point … that we are seeing with wind, I think we have opportunities potentially in Texas and New Mexico too, just on the economic merits alone,” Frenzel said.

Analyst Angie Storozynski of Macquarie Capital questioned whether adding renewables to the rate base in a time of no load growth is the “low-risk” growth strategy the company claims.

Vice President of Investor Relations Paul Johnson acknowledged that the company will be adding capacity that might not be needed until it retires coal plants. “We’re just taking opportunity to capture the full” production tax credit, he said.

“This is our resource plan. … We can build wind competitively, and I think we’ve earned the right to own wind in our backyard,” Fowke added. “It does require alignment with your regulators, but I think we have it.”

Xcel narrowed its 2016 earnings guidance to $2.17 to $2.22/share, down from the previous estimate of $2.12 to $2.27/share. “Our year-to-date weather-adjusted electric sales remain relatively flat,” Frenzel said, explaining the company’s caution.

The company’s stock price opened at $40.33/share before Thursday’s earnings announcement. It closed Friday at $40.68.

Earnings call transcript courtesy of Seeking Alpha.

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